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Probate uncertainty
Legal basis of HMRC letter concerning IHT400 return.
My client is doing his own probate application for his late mother. He and his wife are retired solicitors and are confident that they can deal with it.
They have, however, asked my view on a letter they have received from HMRC thanking them for the IHT400 return. It says: ‘If you have not heard from us by 7 February 2022, you can assume that we have no questions to ask about the information or values you’ve given on this form. We may still ask questions about changes you tell us about at a later date.’
The client does not like the word ‘assume’ and would prefer to know the legal basis. I cannot find the inheritance tax equivalent to the rules about opening enquiries into an income tax or corporation tax return or raising enquiries into a VAT matter.
Can readers advise on the status of this letter, and whether it can be relied on?
Query 19,907 – Paranoid.
Capital gains tax
Only or main residence relief on connecting properties.
My retired client owns jointly with his wife a townhouse in London which has been their main residence since acquisition. They also have a licence to occupy an overseas property owned by an offshore trust which they use for holidays for about five weeks a year and is not thought to affect the London property qualifying as their main residence for the purpose of TCGA 1992, s 222. There is no election under s 222(5).
The third floor of the London property currently connects with a flat in the house next door which is divided into four flats. My clients use this flat as domestic offices and other accommodation but all forming part of their overall residence and it has never been let while in their ownership. The flat is easily adaptable as a self-contained flat, having access from within the house and also from a separate entrance in the adjoining house. The flat has a separate legal title and is separately rated for council tax purposes.
The previous owners also occupied the house and flat in the same way. Both properties were bought by my clients at the same time 14 years ago and are now being sold to separate buyers, but with the same completion dates. Access to the flat from within the main house will be blocked off prior to sale.
I believe my clients’ use of the flat has been as part of his main residence and should therefore qualify for 100% only or main residence relief and they are not required to submit returns for a disposal of UK land under FA 2019, Sch 2 because of paragraph 6.
However, do readers consider that submitting returns under Sch 2, with a suitable explanatory note, would be advisable to preempt possible queries from HMRC, triggered by the separate legal titles?
Query 19,908 – Double.
Gender identity
Are there any tax implications with gender reassignment?
My client, who is a successful businessman with several companies and a large property portfolio, has recently told me that he is about to undergo gender reassignment surgery and apply for a gender reassignment certificate. He has asked me if there are any tax implications of which he should be aware.
This is not something which I have had to consider before. I cannot see that there are any particular tax issues but I did wonder about pensions. In the past, with different retirement ages for men and women, there might have been complications but my client is 50 and by the time she retires there will be a common retirement age, so I do not foresee any difficulties.
Are there any other areas to think about? Also is there a process under which HMRC needs to be notified of the reassignment or does that happen automatically when the certificate is issued?
Query 19,909 – Unfamiliar.
VAT and rental income
When does using space become rent for VAT purposes?
One of my clients is VAT registered and owns an art studio. He trades as an artist but also rents out space in the studio to other self-employed artists. He has always treated the rental income as being subject to VAT, even though he has never opted to tax the studio.
In some cases, the artists have their own room and their own lock and key so that they can have total privacy to do their painting and keep the work safe. In other cases, the artist will just come into the building and use space that is available.
Is my client accounting for VAT correctly? Presumably he could opt to tax the building to remove any doubt about the VAT position and that would also avoid a partial exemption. Does it make any difference that there is no separate supply of electricity to the tenants who have their own room?
Readers’ thoughts would be appreciated.
Query 19,910 – Picasso.
